Public outrage over
$165 million in bonuses for American Insurance Group
executives shifted this week to scrutiny of the Obama
administration and its chief steward of the economy, Treasury
secretary Timothy Geithner.

The magnitude of the
deteriorating situation, while still in question, could cripple
parts of President Barack Obama's progressive agenda in areas
such as health care reform, the environment, and education, not
to mention social issue items such as repealing "don't ask,
don't tell" and passing employment protections for LGBT
folks.

"Clearly, the Obama
administration is in a dangerous moment and this whole
situation needs to be resolved quickly and successfully,"
says Mike Lux, a Democratic strategist who served as a special
assistant to President Bill Clinton.

While much attention
has been paid to whether tackling LGBT issues early on would
become a distraction for the new administration, now the
economic meltdown could actually smother chances for LGBT
gains.

"What you really
worry about with something like this is that a siege mentality
sets in where everyone in Washington is so focused only on this
that there's no air in the room left to do anything else --
that's where we really get hurt," says Richard Socarides, an
attorney in Manhattan who served as a senior adviser to
President Bill Clinton on LGBT issues, among other things.

Anyone who wonders how
a "siege mentality" might set in had only to witness one
press briefing this week where the White House Press Corps
clamped its jaws around the AIG issue like a gnarled chew toy,
with press secretary Robert Gibbs tugging at the opposite
end.

President Obama has
enjoyed high approval ratings that showed their first signs of
strain this week when they slipped from 64% to 59% in a Pew
Research Center poll. The situation went from bad to worse
after questions arose about Secretary Geithner's knowledge of
the bonuses and his failure to block them, and some
congressional Republicans began calling for his
resignation.

The downward turn
underscores an argument that Socarides and some other LGBT
advocates have been making -- that now is the time to press for
pro-gay reforms, not later. "It's right now that's the best
time to get the more controversial things done," he says. The
president had an enormous reservoir of good will following the
election, Socarides argues, and people are distracted by the
economy and the wars.

"I still think it
would be a time to tackle 'don't ask, don't tell,'" he adds.
"There is definitely a risk in all of this that if AIG stands
out as an early defining moment that we'll spend the next 12-24
months digging our way out of this."

LGBT
people also have more at stake here than the
LGBT-specific legislation that hangs in the balance. Key issues
like health care reform could take a hit, limiting just how far
President Obama can overhaul the system. Since health insurance
distribution is tied to employment and most companies still
don't provide domestic-partner benefits, gays and lesbians
experience greater barriers to access.

"The overwhelming
impact of the assumption of universal heterosexuality has led
to disproportionate inequality for LGBT people when it comes to
accessing health care," says Kenneth Sherrill, a political
science professor at Hunter College who specializes in LGBT
issues. Sherrill also notes that many insurers
deem HIV/AIDS a preexisting condition by which they
may exclude clients from coverage. "So in
that sense, meaningful health care reform is our issue too,"
Sherrill observes.

But Sherrill also
floats an alternative theory -- the AIG scandal could so badly
damage the reputation of insurance companies that it undermines
their ability to curb health reform. The insurance industry was
one of many powerful interest groups that helped block the
Clintons' attempt to revamp the country's health care
system.

"Perhaps the net
effect of this could be to embolden our leadership at a time
when our enemies are weakened," Sherrill poses.

No one is sure just how
messy the AIG cleanup will get and whether it could, indeed,
debilitate the president's agenda.

"We have yet to see
whether AIG is something that can be contained," Sherrill
says, adding that people have called for Geithner's removal
before. And even if Geithner made an exit, Sherrill says, "My
sense is that no one is indispensable. If he gets replaced, the
government still goes on."

But White House
veterans sense the danger from administrations past.

Lux, who recently
authored a book calledThe Progressive Revolution: How the Best in America Came to
Be

, notes that President Lyndon B. Johnson pushed an enormous
amount of legislation through in the first few years of his
administration only to have his presidency get bogged down in
Vietnam. But Johnson's not the only president whose
priorities crumbled under the weight of greater forces.

"I think you could
argue in Clinton's term that the mishandling of gays in the
military slowed them down and took away momentum on other
things they were trying to do," Lux says. "That hurt their
ability to get off to a good start on health care and
everything else."